International Price and Earnings Momentum

European Journal of Finance, Vol. 18, No. 5-6, 2012, pp. 535-573

Posted: 18 Sep 2012

See all articles by Harald Lohre

Harald Lohre

Invesco; Centre for Endowment Asset Management, Cambridge Judge Business School, University of Cambridge; Centre for Financial Econometrics, Asset Markets and Macroeconomic Policy, Lancaster University Management School

Markus Leippold

University of Zurich - Department of Banking and Finance; University of Zurich - Faculty of Economics, Business Administration and Information Technology

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Date Written: September 17, 2012

Abstract

In this paper, we find that price and earnings momentum are pervasive features of international equity markets even when controlling for data-snooping biases. For Europe, we show price momentum to be subsumed by earnings momentum on an aggregate level. However, this rationale can hardly be sustained on a country level. Also, the above explanation is confined to certain time periods in the USA. Since we cannot establish a decent relation between momentum and macroeconomic risks, we suspect a behavior based explanation to be at work. In fact, we find momentum profits to be more pronounced for portfolios characterized by higher information uncertainty. Hence, the momentum anomaly may well be rationalized in a model of investors underreacting to fundamental news. Finally, we find that momentum works better when limited to stocks with high idiosyncratic risk or higher illiquidity, suggesting that limits to arbitrage deter rational investors from exploiting the anomaly.

Keywords: earnings momentum, price momentum, market efficiency, multiple hypothesis testing, information uncertainty, liquidity

JEL Classification: G11, G12, G14, M40

Suggested Citation

Lohre, Harald and Leippold, Markus, International Price and Earnings Momentum (September 17, 2012). European Journal of Finance, Vol. 18, No. 5-6, 2012, pp. 535-573, Available at SSRN: https://ssrn.com/abstract=2147715

Centre for Endowment Asset Management, Cambridge Judge Business School, University of Cambridge

Cambridge
United Kingdom

HOME PAGE: http://https://www.jbs.cam.ac.uk/faculty-research/centres/ceam/

Centre for Financial Econometrics, Asset Markets and Macroeconomic Policy, Lancaster University Management School

Bailrigg
Lancaster LA1 4YX
United Kingdom

HOME PAGE: http://www.lancaster.ac.uk/lums/research/research-centres/financial-econometrics/

Markus Leippold

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

University of Zurich - Faculty of Economics, Business Administration and Information Technology ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

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